Managerial Accounting
Managerial Accounting
6th Edition
ISBN: 9781259726972
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 4, Problem 3PSA

1.

To determine

To identify:Categorization of overhead activities.

1.

Expert Solution
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Explanation of Solution

Given below is the categorization of overhead activities:

  • Unit level:Activities that are performed on each unit.
  • Batch level: Activities that are performed in batches or groups.
  • Product level: Activities that are performed separately for each product.
  • Facility level:Activities that are performed at the factory or plant level

Given below is the classification of each activity as unit level, batch level, product level or facility level:

  • Grinding is a unit level activity.
  • Polishing is a unit level activity.
  • Product modification is a product level activity.
  • Providing power is a facility level activity.
  • System calibration is a batch level activity.

Hence, above activities are categorized under unit level, batch level, product level or facility level.

2.

To determine

To compute: Computation of activity overhead rates using ABC.

2.

Expert Solution
Check Mark

Explanation of Solution

Given below is the computation of pool activity rates:

Calculation of activity pool rate
Cost pool activity Driver Activity cost ($) Activity pool cost ($) Driver quantity Pool rate
Grinding Machine hours 320,000
Polishing Machine hours 135,000 455,000 13,000 $35
Product modification Engineeringhours 600,000 1,500 400
Providing power Directlaborhours 255,000 17,000 15
System calibration Batches 500,000 400 1,250
1,810,000
Table(1)

Hence,activity pool rates have been computed in above table.

3.

To determine

To compute: Overhead costs assigned to job 3175 and job 4286.

3.

Expert Solution
Check Mark

Explanation of Solution

Overhead costs are ascertained by multiplying the pool activity rates with cost drivers used for each job.

Given below is the computation of overhead costs assigned to job 3175 and job 4286:

Calculation of overhead costs assigned to job 3175 and job 4286:

Allocation of total overhead cost
Job 3175
Job 4286
Cost pool activity Pool rate ($) Driver quantity Cost allocated ($) Driver quantity Cost allocated ($)
Grinding and polishing 35 550 19,250 5,500 192,500
Product modification 400 26 10,400 32 12,800
Providing power 15 500 7,500 4,375 65,625
System calibration 1250 30 37,500 90 112,500
74,650 383,425
Table(2)

Hence, overhead cost allocated to job 3715 is $74,650 and job 4286 is $383,425.

4.

To determine

To compute: Overhead cost per unit.

4.

Expert Solution
Check Mark

Explanation of Solution

Given below is the computation of overhead cost per unit:

Particulars Job 3175 Job 4286
Total cost allocated $74,650 $383,425
Number of units 200 2,500
Overhead cost per unit $373.25 $153.37
Table(3)

Hence, overhead cost per unit for job 3715 is $373.25 and job 4286 is $153.37.

5.

To determine

To compute: Overhead cost per unit as per plantwide overhead rate based on direct labor hours.

5.

Expert Solution
Check Mark

Explanation of Solution

Given,
Grinding is $320,000
Polishing is $135,000
Product modification is $600,000
Providing power is $255,000
System calibration is $500,000
Labor hours of job 3175 is 500 hours
Labor hours of job 4286 is 4875 hours

Formula to calculate overhead cost per unit,

   Overhead cost per unit= Total overheads Total direct labor hours

Formula to calculate total overhead,

   Total overheads=( Grinding+Polishing+Product modification +Providing power+System Calibration )

Substitute $320,000 for value of grinding, is $135,000 for value of polishing, $600,000 for the value of product modification, providing power is $255,000 for the value of providing power, $500,000 for the value of System calibration.

   Total overheads=$320,000+$135,000+$600,000+$255,000+$500,000 =$1,810,000

Formula to calculate total direct labor hours,

   Total direct labor hours=Labor hours of job 3175+Labor hours of job 4286

Substitute 500 hours for the value of labor hours of job 3175 and 4875 hours for the value of labor hours of job 4286.

   Total direct labor hours=500hours+4,375hours =4,875 hours

   Overhead cost per unit= $810,000 4,875 hours =$371.28

Hence,overhead cost per units is $371.28 for both jobs.

6.

To determine

To identify: Comparison of overhead cost by both methods.

6.

Expert Solution
Check Mark

Explanation of Solution

  • It is more useful to use ABC method than plantwide method as ABC method provides more accurate cost allocations which helps in better pricing decisions.
  • Plantwide rate uses direct labor hours as its single allocation base and job 4286 has high direct labor hours and hence it is not a fair measure of allocation in this situation.

Hence, activity based costing gives more accurate information than plantwide method.

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Chapter 4 Solutions

Managerial Accounting

Ch. 4 - What is a cost object?Ch. 4 - Explain why a single plantwide overhead rate can...Ch. 4 - Why are multiple departmental overhead rates more...Ch. 4 - Prob. 9DQCh. 4 - Prob. 10DQCh. 4 - Prob. 11DQCh. 4 - Prob. 12DQCh. 4 - Prob. 13DQCh. 4 - Prob. 14DQCh. 4 - 15. What are the four activity levels associated...Ch. 4 - Prob. 16DQCh. 4 - Prob. 17DQCh. 4 - Prob. 18DQCh. 4 - Prob. 1QSCh. 4 - Prob. 2QSCh. 4 - Prob. 3QSCh. 4 - Prob. 4QSCh. 4 - Prob. 5QSCh. 4 - Prob. 6QSCh. 4 - Prob. 7QSCh. 4 - Prob. 8QSCh. 4 - Plant wide rate method P1 A manufacturer uses...Ch. 4 - Prob. 10QSCh. 4 - Prob. 11QSCh. 4 - Prob. 12QSCh. 4 - Prob. 13QSCh. 4 - Prob. 14QSCh. 4 - Prob. 15QSCh. 4 - Prob. 16QSCh. 4 - Exercise 17-17 Identifying activity levels C3...Ch. 4 - Prob. 2ECh. 4 - Exercise 17-1 Computing Plantwide overhead rates...Ch. 4 - Prob. 4ECh. 4 - Prob. 5ECh. 4 - Prob. 6ECh. 4 - Exercise 17-5 Departmental overhead rates P2 Refer...Ch. 4 - Prob. 8ECh. 4 - Prob. 9ECh. 4 - Prob. 10ECh. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Prob. 13ECh. 4 - Prob. 14ECh. 4 - Prob. 15ECh. 4 - Prob. 16ECh. 4 - Exerciser 17-14 Activity-based costing P3 A2...Ch. 4 - Prob. 18ECh. 4 - Problem 17-1A Comparing costs using ABC with the...Ch. 4 - Prob. 2PSACh. 4 - Prob. 3PSACh. 4 - Prob. 4PSACh. 4 - Prob. 5PSACh. 4 - Prob. 1PSBCh. 4 - Prob. 2PSBCh. 4 - Prob. 3PSBCh. 4 - Prob. 4PSBCh. 4 - Prob. 5PSBCh. 4 - Prob. 4SPCh. 4 - Prob. 1AACh. 4 - Prob. 2AACh. 4 - Prob. 3AACh. 4 - Prob. 1BTNCh. 4 - Prob. 2BTNCh. 4 - Accounting professionals who for private companies...Ch. 4 - Prob. 4BTNCh. 4 - Prob. 5BTNCh. 4 - Visit and observe the processes of three different...
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